As China Money Markets Ease Up, Traders Gird for Next Crunch
- Rate swaps and bond yields plunged after cash injections
- But Lunar New Year, yuan drop threaten to push costs back up
China Currency Controls Combat Yuan Bears
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China’s traders are bracing for a return of tighter liquidity as demand for cash surges before the start of the country’s biggest holiday.
Onshore money markets have only just loosened as the People’s Bank of China stepped up support to ease a crunch that it was partly responsible for and as seasonal tightness around the new year ended. That relief is likely to be temporary: Lunar New Year holidays -- for which households and firms typically need more cash -- start earlier than usual this year on Jan. 27. Capital outflows, fueled by yuan depreciation fears, may also add to stress in the financial system.